Summary
Where a) cargo was carried under a bill of lading into which the
Hague Rules, as contained in the International Convention for the Unification of
Certain Rules relating to Bills of Lading of 25 August 1924, were incorporated
as a matter of contract in their entirety but b) the bill of lading, in
incorporating the Rules, specifically provided that the package limitation was
to be "£100 sterling, lawful money of the United Kingdom per package or
unit" then the contractual provision was to be preferred to the package
limitation set out in Articles IV Rule 5 and Article IX of the Hague Rules,
namely the value of the gold which £100 sterling would have bought in 1924.

DMC Category Rating: Confirmed

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Facts

Dairy Containers Ltd were the consignees of a consignment of
coils of electrolytic tin plate shipped in October 1999 from Busan, Korea, to
Tauranga in New Zealand on board the Tasman Discoverer, a ship operating in the
service of the defendants, Tasman Orient Line. On arrival in Tauranga, the coils
were found to be damaged by sea water and the majority of them were sold as
scrap. After deduction of salvage, the net claim of Dairy Containers amounted to
NZ$613,667. Tasman Orient accepted liability for the damage but maintained that
they could limit their liability to the sum of £100 per package or unit, in the
total amount of £5,500.

The consignment was carried under a bill of lading which
contained the following relevant provisions:
Clause 6(B)(b)(i):
"Where no international convention or national law would
apply [mandatorily], the liability of the Carrier for loss of or damage to the
goods shall be determined:

(i) By the Hague Rules contained in the International
Convention for the Unification of Certain Rules relating to Bills of Lading
dated 25 August 1924 (hereinafter called the Hague Rules), if the loss or
damage is proved to have occurred at sea…..; for the purpose of this
sub-paragraph the limitation of liability under the Hague Rules shall be
deemed to be £100 Sterling, lawful money of the United Kingdom per package
or unit…. and the Hague Rules shall be construed accordingly:"

Clause 8
"If any provision of this Bill of Lading is held to be
repugnant to any extent to any international convention or national law which is
applicable to this Bill of Lading by virtue of Clauses 6….. such provision
shall be null and void to that extent but no further."

The case was governed by New Zealand law. It was common ground
that there was no international convention or national law mandatorily
applicable to the bill of lading.

The relevant provisions of the Hague Rules were Article III Rule
8, which reads:
" Any clause, covenant or agreement in a contract of
carriage relieving the carrier or the ship from liability for loss or damage to,
or in connection with, goods arising from negligence, fault, or failure in the
duties and obligations provided in this article or lessening such liability and
otherwise than as provided in this convention, shall be null and void and of no
effect……"

Article IV, Rule 5, which reads:
"Neither the carrier nor the ship shall in any event be or
become liable for any loss or damage to or in connection with goods in an amount
exceeding £100 per package or unit, or the equivalent of that sum in other
currency unless……."

and Article IX which reads:
"The monetary units mentioned in this convention are to be
taken to be gold value."

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Judgment at First Instance
At first instance, judgment was given in favour of Dairy
Containers, the cargo interests.

The question for the court was whether the wording of Clause
6(B)(b)(i) in the bill of lading entitled Tasman Orient to limit its liability
to 55 times £100 sterling in legal tender of the United Kingdom or whether the
package limitation was 55 times that arising out of Articles IV Rule 5 and IX of
the Hague Rules as judicially construed.

After analysing the judgments in the case of The "Rosa
S" [1988] 2 LLR 574 and in Brown Boveri (Australia) v. Baltic Shipping Co
[1989] 93 ALR 171, Williams J. held that the result of these two Articles was
‘that the package limit is effectively £100 sterling gold value, that is to
say, the quantity of gold which was the equivalent of £100 sterling or the gold
content of that amount when the Hague Rules were adopted in 1924.’ The judge
quoted with approval from the judgment of the court of appeal in the Brown
Boveri case to the effect that "the first sentence of Article IX was
inserted to achieve stability and to avoid the effect of erosion of sterling’s
value by inflation so that the limit of liability of £100 sterling was added to
by a qualification that the amount of the sterling was not simply to be £100
sterling; it was to be the value of the gold which £100 sterling would then
buy."

In the present case, the parties had by contract incorporated
the Hague Rules into the bill subject to the limitation of liability under
Clause 6(B)(b)(i) to "£100 sterling lawful money of the United Kingdom per
package or unit." However, in the judge’s view, the effect of Clause 8(2)
of the Bill of Lading was to nullify the package limitation in Clause 6(B)(b)(i)
to the extent that it was in conflict with the Hague Rules – in other words,
he held that the Hague Rules had to be given contractual primacy over the terms
of the bill of lading. Further, the Hague Rules being incorporated in their
entirety into the bill, the clause paramount in Article III Rule 8 confirmed
that to be the result. It followed that if there were any inconsistency between
the phrase "£100 sterling lawful money of the United Kingdom per package
or unit" in Clause 6(B)(b)(i) and the phrase "£100 per package or
unit or the equivalent sum in other currency" in Article IV Rule 5, the
latter supervened and the former was nullified.

In the court’s view, the effect of including the words
"sterling lawful money of the United Kingdom" in Clause 6(B)(b)(i) was
merely to clarify the currency of the liability limitation, to avoid the
possibility of confusion with other national currencies denominated in pounds.

A further reason for the judge reaching the view he did was the
inherent unlikelihood of the parties agreeing that recovery should be limited to
a sum set 77 years earlier. That unlikelihood was demonstrated by comparing the
possible results in this case, £5500 against NZ$613,667. The judge concluded
that it was "highly improbable in a business transaction involving the
importation of valuable goods by sea that the importer…….would have agreed
to run the risk of being able to recover only a few per cent of the value of its
loss in the event of damage."

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Judgment of the Appeal Court
The Court of Appeal overruled the judgment at first instance and
found in favour of the shipping line carriers.

The court emphasised that it was not dealing with mandatory
national legislation; it was concerned only with the interpretation of the
agreement that the parties had made. A careful analysis of clause 6(B)(b)(i) of
the bill of lading showed that the words "the limitation of liability under
the Hague Rules shall be deemed to be £100 Sterling, lawful money of the United
Kingdom per package or unit" were clearly intended to replace the limit
that would otherwise have applied under Articles IV.5 and IX of the Hague Rules
by a new limit written in terms of national currency only. The final words of
the clause – "and the Hague Rules shall be construed accordingly"
had to be read as requiring that the relevant parts of the Hague Rules be read
as being amended by the new ‘deemed’ parts. The end result was that the
carrier’s liability was limited to £100 sterling, lawful money of the United
Kingdom per package or unit, that is, to a total in this case of £5,500.

Article 3.8 of the Hague Rules would operate as a paramountcy
clause when the Rules applied compulsorily as a matter of statute, but that was
not the case here, where the court was concerned simply with the interpretation
of a contract. In that context, the more general provisions of Art.3.8 have to
give way to the express limitation stated by the parties in clause 6(B)(b)(i) of
the bill of lading. The more specific provision has to be preferred "as a
matter of the common sense reading of the bill of lading as a whole. The parties’
plain purpose was to alter that aspect of the Hague Rules. That purpose must be
given effect to."

Similar points could be raised in answer to the arguments based
on clause 8(2) of the bill of lading but, in the court’s view, that clause
could apply only ‘to the extent’ that the Hague Rules were applicable by
virtue of clause 6. That extent was determined in relevant part by clause 6(B)(b)(i).
The extent of the Hague Rules as so applied, did not include the original
limitation provisions of Art.IV.5 and IX. As a result, there could be no
repugnancy between the bill of lading and those provisions. It would make no
sense, the court held, to direct a modification in those Articles and then
immediately to make it null and void.

Contrary to the judge at first instance, the court did not view
the reference to ‘lawful money of the United Kingdom’ as simply defining the
currency in which payment should be made. "No reason," the court said,
"can be given for such a strained reading."

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Note:

Dairy Containers have sought
leave to appeal to the Privy Council.

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